Reliance may look elsewhere as Lyondell hopes fade

By IBT Staff Reporter On 03/02/10 AT 8:04 AM

MUMBAI - LyondellBasell has rejected Reliance Industries' offer that values the bankrupt firm at $14.5 billion, Bloomberg reported, a decision that could push the Indian energy major to focus on other overseas targets.

Reliance, controlled by India's richest man Mukesh Ambani, has said his company plans an aggressive exploration campaign, investments in petrochemicals and overseas acquisitions. Reliance has raised a war chest for potential deals by selling $2 billion in stock in recent months.

A creditor group led by U.S. private equity firm Apollo Management, which is controlling Lyondell's bankruptcy process in the United States, was expected to file a reorganization plan on Monday. That plan is set to lead Lyondell out of bankruptcy.

But by 0900 GMT, there had been no filing, as per the website of the U.S. Bankruptcy Court of the Southern District of New York.

Reliance, being the size it is, will be looking at other options overseas even if this bid fails, and sooner than later, something else will come up, said Rakesh Rawal, head of private wealth management at Anand Rathi Financial Services.

Shares in India's most valuable listed company with a market value of about $70 billion, traded about 1 percent higher on Tuesday, underperforming the 2.1 percent gain in the benchmark. The stock had risen as much as 2.1 percent in early trade.

A deal would significantly enhance Reliance's presence in major markets such as the United States and Europe and catapult it into the ranks of top global chemicals makers such as Saudi Arabia's SABIC, Germany's BASF and Dow Chemical Co.

According to media reports, Reliance made a $2 billion offer to buy private Canadian oil-sands firm Value Creation Inc, although three people familiar with Reliance's thinking have said the Calgary, Alberta-based firm may not be an ideal target.

Other possible targets include assets owned by U.S.-based Valero Energy and Sunoco, energy assets belonging to ConocoPhillips and refineries in Europe that are up for sale, bankers have said.

In the short term, I will be happy if the bid fails because the acquisition risk has been removed and Reliance's profits will remain unaffected, Rawal said.

But from a longer-term perspective, I am sad because the company could have gained a lot of synergies from this acquisition over the next few years, said Rawal, who recommends the stock to his clients.

SHARES UNDERPERFORM

Reliance, with interests in petrochemicals, refining, oil and gas exploration and retail, has been trying to buy Luxembourg-headquartered Lyondell since November, when it made a bid valuing the target at about $12 billion.

The company's shares have underperformed the market since the middle of last year, but that's because of various factors such as a weak refining and petrochemical margin environment, concerns about how the company is going to sustain growth in the long term and the gas case, said Maulik Patel, an oil and gas analyst at K.R. Choksey Shares and Securities.

Reliance is embroiled in a legal battle over gas supplies to Reliance Natural Resources, which is led by Mukesh's estranged younger brother Anil.

In November, investors cheered Reliance's Lyondell bid as the company was seen as snatching a potential bargain. Reliance has since raised its offer twice, sources have said, with chances for success clouded by the prospect senior creditors such as Apollo Management may take a loss at the price Reliance has proposed and gain more from an independent Lyondell.

Reliance is being advised by boutique U.S. investment banking firm Perella Weinberg Partners on the Lyondell bid, two sources familiar with the matter have told Reuters.